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Ascott Residence Trust (ART) to acquire 548-bed freehold student housing asset named Seven07 in Champaign, Illinois, United States for US $ 83.25 million[1] (S $ 112.4 million[2]).

Seven07 serves approximately 56,000 undergraduate and graduate students at neighboring University of Illinois Urbana-Champaign (UIUC). The yield-generating acquisition is expected to increase ART’s pro forma distribution per stapled security for fiscal 2020 by approximately 1.2%[3]. Entry EBITDA[4] the yield is expected to be around 4.5% and is expected to reach around 4.8% on strong rental growth for the academic year (YY) 2022. The transaction, which is expected to close in mid-November 2021, will be financed by debt and part of the proceeds of ART’s private placement launched in September 2021[5]. The acquisition of Seven07 follows ART’s recent acquisition of Wildwood Lubbock in Texas and is ART’s fourth investment in student housing in 10 months this year.

Ms. Beh Siew Kim, Chief Executive Officer of Ascott Residence Trust Management Limited and Ascott Business Trust Management Pte. Ltd. (the managers of ART) said: “ART continues to increase its investments in the long-stay segment in order to generate stable revenues and the resilience of our portfolio. Seven07 is operational and will begin to generate stable revenues upon acquisition. The student housing asset is 100% occupied for AA 2021, with lease terms of around one year. For YY 2022 Seven07 is approximately 50% pre-let with strong rental growth of around 8% compared to YY 2021.

“ART has successfully replaced distributable income from transferred assets with higher returns. We sold five properties for approximately S $ 501 million[6] over fiscal years 2020 and 2021 to date, with an average exit yield of around 2%. We have invested a total of approximately S $ 491 million in four student housing assets and three rental housing properties at an average EBITDA return of approximately 5%[7]. With Seven07, ART will increase our student housing and rental housing to around 12% of our total portfolio value, allowing us to maintain our long-term accommodation asset growth target at around 15-20% over the medium term. . Following this acquisition, ART’s gearing will be 35.8%[8]. ART remains in a strong financial position to seek profitable investments in longer term assets in order to diversify our portfolio, improve our resilience and create more value for our stapled security holders, ”added Ms. Beh.

Seven07 serves UIUC which is commonly known as “Public Ivy”.[9]’school. The prestigious UIUC is a flagship university in Illinois and is consistently ranked among the top schools in the United States for its undergraduate accounting, computer science, and engineering programs.[10]. UIUC’s student body grew steadily at a compound annual growth rate of 2% from 2010 to 2020, double the national average. UIUC registrations also increased by 2% in 2020 despite COVID-19. 87% of its student body is from the United States[11]. The UIUC track and field program also participates in the Big Ten Conference, one of the National Collegiate Athletic Association’s “Power 5” track and field conferences. The supply of new private student accommodation is minimal in the vicinity of Seven07 in the medium term.

Seven07 is located less than 200 meters from the UIUC. From Seven07, students can walk to UIUC in five minutes and its main quad in about 10 minutes, providing students with a well-designed and comfortable accommodation option while maintaining an active student life on campus. The active student accommodation is also close to several restaurants, cafes and other lifestyle options.

Opened in 2019, the 15-story Seven07 has 548 beds spread across 218 units, including studios and one- to four-bedroom apartments. Each apartment has a fully equipped kitchen, a smart TV and a washing machine and dryer. Most of the rooms in the apartments also have a private bathroom. The student accommodation asset has a range of facilities including an outdoor patio with swimming pool, state-of-the-art fitness center, outdoor lounge with grill stations, indoor basketball court, spa with services sunbathing and sauna rooms, study rooms, club room, bicycle storage, lounge café and covered parking lots and garages. Seven07 will be managed by an independent third party operator. For more information on student accommodation, please see the annex.

Expanding ART’s student housing portfolio to strengthen income resilience

With the addition of Seven07, ART’s four student housing assets in the United States will provide a total of 2,756 beds. In September 2021, ART acquired Wildwood Lubbock, a freehold student housing asset with 1,005 beds for US $ 70.0 million (S $ 93.8 million). It has an expected EBITDA return of around 5.1%. Wildwood Lubbock serves more than 40,000 undergraduate and graduate students at Texas Tech University.

In June 2021, ART and its sponsor, The Ascott Limited, announced that they would jointly invest and develop freehold student accommodation in South Carolina, United States. ART will invest $ 55.2 million[12] (S $ 73.4 million) in the 678-bed student housing that will serve more than 35,000 students at neighboring South Carolina University. Construction of student housing began in Q3 2021 and is expected to be completed in Q2 2023. Once stabilized, the return on EBITDA is expected to be around 6.2%[13].

In February 2021, ART acquired the 525-bed Paloma West Midtown freehold property in Atlanta, Georgia for US $ 95 million (S $ 126.3 million) with an expected EBITDA return of approximately 5%. Paloma West Midtown is home to nearly 40,000 students at the Georgia Institute of Technology.

  1. The consideration for the purchase, established on the basis of a willing buyer and willing seller, is based on the agreed value of the property and the independent appraisal dated October 29, 2021 by Colliers International Valuation and Advisory Services LLC US $ 86.4 million (equivalent to approximately S $ 116.6 million)
  2. Based on the exchange rate of US $ 1 to S $ 1.35
  3. Based on the pro forma distribution for fiscal year 2020 by stapled security. The pro forma is based on ART’s audited financial statements for the year ended December 31, 2020, assuming that (1) the acquisition was completed on January 1, 2020 and ART has owned and operated the building until as of December 31, 2020 and (2) the acquisition will be approximately 45% financed by debt and 55% by equity
  4. Earnings before interest, taxes, depreciation and amortization
  5. ART will use approximately 43% of the $ 150 million raised through its private placement to finance the acquisition of Seven07. Approximately 38% was used to acquire Wildwood Lubbock in September 2021
  6. Excludes disposal of partial gross floor space of Somerset Liang Court Singapore; the property is currently being redeveloped. The five assets sold are Ascott Guangzhou, Somerset Azabu East Tokyo, Citadines Didot Montparnasse Paris, Citadines City Center Grenoble and Somerset Xu Hui Shanghai
  7. For student housing development in South Carolina, USA, the EBITDA return is a target return on a stabilized basis
  8. Based on ART’s unaudited financial statements as at September 30, 2021 and assuming the acquisition was completed on September 30, 2021
  9. “Public Ivy” refers to public schools with a reputation for academic excellence that offer a college experience similar to an Ivy League school.
  10. 2021 US News & World Report
  11. Data based on AY 2020
  12. Includes ART’s investment in the initial 45% stake, the estimated cost of the additional 5% stake that ART will acquire at fair market value, and other transaction-related expenses
  13. Based on the total ART investment

Appendix – About the student housing asset

Site

707 South Fourth Street, Champaign, Illinois

Completed

2019

Land tenure

Freehold

Net rental area

202,162 square feet (ft²)

Units

218

Beds

548

Mix of units

Studio: 33 units (422 – 539 ft2)

1 bedroom: 32 units (492 sq. Ft.)

2 bedrooms: 64 units (696 – 887 sq. Ft.)

3 bedrooms: 1 unit (1,148 sq. Ft.)

4 bedrooms: 88 units (1,229 – 1,447 sq. Ft.)

92% of the rooms are equipped with en-suite bathroom

Common area amenities

Outdoor terrace with swimming pool, state-of-the-art fitness center, outdoor lounge with grill stations, indoor basketball court, spa with tanning services and sauna, study rooms, club room, bicycle storage, coffee lounge and covered parking lots and garages


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